Three money traps to avoid
Three money traps to avoid
We all do it – we all fall into money traps without even knowing. Life is so busy today; there are so many pressures on us that sometimes making fast decisions is all we believe we have time to do.
However, making decisions quickly around money can lead to long term pain. After 24 years of working in the finance industry, I have learned a thing or two from some of the best money minds in the country. One of the biggest traits they have all shared is being deliberate in their strategy and being very patient.
Here’s how to avoid the three biggest traps around money and how you can think like a money master.
Avoid the impulse purchase.
Whether shoes are your thing or whether it’s a new car, spending money without having a prior plan can often lead to trouble. While it sounds like common sense, a lot of the time we are buying things to give ourselves a short term ‘high’. This high does not last however, but what usually does last is the credit card debt or black hole in our bank account. Be deliberate in your purchases.
That’s not to say you can’t have it – but plan it, do your research, find the best deal and THEN enjoy. Oh, and if you are buying it through a credit card without a firm plan and timeline of how to pay it off, best to give it a miss. Credit debt = trapped.
Don’t keep your money in one account.
It allows you no control or visibility about where it’s going and what you are doing with it. Rather, set up at least three accounts where money is moved every time you get paid. The first is your working account (bills and everyday living), while the second is your TREAT account – what have you been wanting that makes life fun?
The third account is the one that will help you sleep at night. It’s the rainy day, don’t touch, hands off account. Make it a high interest, hard to touch account. This give you the peace of mind that if the worst happens, you are ready. How you split the amounts is up to you – but at least 10 per cent should go into your rainy day account.
Value investing over consuming.
Think about assets that are rising in value – like your home – versus things that are falling in value – like your car. Start to think of your purchasing in terms of what can you buy that rises in value? If you have never bought a share, ETF, or managed fund, you can do so through your super or even outside of your super. Oh, and speaking of super – are you putting enough in? You can put up to $24,000 a year in super at the lowest tax rate of 15%. It’s crazy not to take advantage of this tax saving mechanism and prepare for your future. After all, according to research from Griffith University, up to 80% of Australians that are generation X and Y may fall short of a comfortable retirement.
Money traps are everywhere, and the older you get the more you realise that having patience, being deliberate and becoming prepared are sure fire ways to avoid most of the traps and get ahead.
Until next time
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